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Steady core performance; summer portfolio lags

* Emami reported a flat consolidated revenue in 1QFY26 (vs. an est. of -3%), as growth in the core portfolio was offset by a sharp decline in the summercentric Talc and Heat powder. The overall domestic sales were flat in value terms and declined 3% in volume. The core domestic business (ex-Talc/Heat Powder) grew 6% YoY, led by 3% volume growth.

* The summer portfolio declined 17% YoY, impacted by an exceptionally high base (54% growth in 1QFY25) and early monsoons, with muted demand. International business grew 2% YoY (flat in constant currency), with softness in Bangladesh weighing on growth.

* Pain management grew 17% YoY, aided by monsoon-driven demand. The healthcare segment grew 4% YoY on the back of new launches and strong digital traction. The Boroplus range declined 5% YoY, while its antiseptic cream variant grew 60% YoY. The Navratna range and Dermicool dipped 5% YoY, while the Male grooming/Kesh King were down 9%/5%.

* Gross margin expanded 180bp YoY to 69.4% (vs. est. 67.2%), supported by a favorable product mix, while EBITDA margin contracted marginally by 20bp YoY to 23.7% due to higher investments and operating costs.

* With gradual demand recovery underway, Emami’s initiatives related to distribution expansion, new launches, and focused marketing spending are expected to accelerate its revenue growth. Given benign RM costs and operational efficiencies, we expect its margins to be sustained at the current levels. We reiterate our BUY rating on the stock with a TP of INR700 (premised on 30x Jun’27E EPS).

Performance above estimates; volume up 3% YoY (ex-Heat powder)

* Talc and Heat powder drag revenue growth: Consolidated net sales were flat YoY at INR9,041m (est. INR8,752m). Domestic business revenue declined 1% YoY, along with a volume decline of 3% (est. -3% and 5% in 4QFY25, respectively). Domestic business (excluding Talc and heat powder) grew by 6% with volume growth of 3%. Talc/Heat powders’ revenue dipped 17% YoY on a significantly high base of 54% growth in 1QFY25. Growth was flat in the full season (Jan-Jun’25) despite weather-related headwinds. International business revenue grew 2% YoY (flat in CC terms).

* GM improvement sustains: Gross margin expanded 180bp YoY to 69.4% (est. 67.2%). Employee expenses/other expenses were up 8%/12%, while Ad spending declined 2% YoY. EBITDA margin contracted marginally by 20bp YoY to 23.7% (est. 22.4%).

* EBITDA was down 1% YoY to INR2,142m (est. INR1,965m). PBT grew 5% YoY to INR1,889m (est. INR1,632m). APAT rose 9% YoY to INR1,843m (est. INR1,560m).

Highlights from the management commentary

* Urban discretionary consumption remained under pressure during the quarter, while rural demand showed early signs of recovery.

* Organized trade channels (modern trade and eCommerce) contributed 27% of domestic revenue in 1QFY26, up 190bp YoY.

* The international business, contributing 16% of total revenue, reported modest growth of 2% YoY. The Bangladesh business saw a sharp decline, while other international markets posted a robust growth of 13.6% YoY.

* The Fair and Handsome cream portfolio continues to face pressure despite a rebranding effort; the focus has now shifted to driving growth in the face wash category with category extensions planned in 2HFY26.

Valuation and view

* We broadly maintain our FY26/FY27 EPS estimates.

* Emami’s core categories are niche, and they have been witnessing slow user addition over the last five years. Although it commands a high market share in core categories, the share gain is no longer a catalyst for volume growth.

* With gradual demand recovery underway, Emami’s initiatives related to distribution expansion, new launches, and focused marketing spending are expected to accelerate its revenue growth. Given benign RM costs and operational efficiencies, we expect its margins to be sustained at the current levels. We reiterate our BUY rating on the stock with a TP of INR700 (premised on 30x Jun’27E EPS).

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